MIDDLE EAST ENERGY IN THE 21ST CENTURYimage.digitalinsightresearch.in/Uploads/Meed/2019/04/V5_Mashreq_… · Further, Irena’s analysis suggests that achieving renewable energy deployment

Trends reshaping power supply and demand in the region

Vol 3 | Energy | April 2019

MIDDLE EAST ENERGY IN THE 21ST CENTURY

W E M A K E P O S S I B L E

W ith an abundance of low-cost hydrocarbons, spending on energy sup-ply capacity in the Middle East has traditionally focused on huge cap-ital investments in large-scale oil and gas-fuelled power and desalina-tion plants, largely owned and operated by government utilities.

But as governments become increasingly concerned about the unsustainability of oil and gas, the approach is changing. Other factors are also driving the new mindset.

Burning hydrocarbons is a significant contributor to carbon dioxide emissions, as well as other environmental hazards. Separately, as the region’s primary source of export revenues, governments would prefer to sell or save their most-prized resource rather than burn it.

Across the Middle East, there is a growing interest in pursuing cleaner energy sources. Governments are rolling out energy diversification strategies that will lead to a much larger share of energy supply coming from alternative sources such as solar, wind and nuclear.

The International Renewable Energy Agency’s (Irena’s) 2019 Renewable Energy Market Analysis for the GCC highlights that a total of nearly 7GW in renewable power generation capacity is planned to come online by the early 2020s, led by the UAE, Oman and Kuwait.

Further, Irena’s analysis suggests that achieving renewable energy deployment targets in the GCC by 2030 could save 354 million barrels of oil equivalent in fossil fuel consumption in the power sector (a 23 per cent decrease over the baseline). It would also help reduce emissions by 136 million tonnes of carbon dioxide; create more than 220,000 direct jobs; and reduce water withdrawal for power production and associated fuel extraction by 11.5 trillion litres (a 17 per cent decrease).

One of the challenges facing emerging renewable energy sources such as solar and wind power is their lack of capacity to provide a reliable base-load. When the wind drops, so does wind power generation. This is one of the key reasons why fossil fuels will continue to be the most significant component of the energy supply mix throughout the 21st century. This will be supplemented by the expansion of nuclear power plants, which, despite controversial associations, are being transformed in terms of size, cost and security.

The development of utility-scale energy storage systems and batteries is the next frontier for the energy sector, and pioneering projects underway could have major implications for the future of renewable energy in the region.

Factors such as digitalisation and the electrification of industries are transforming not just energy supply and demand, but also the way we live and work.

In this special report, MEED examines the major trends reshaping the energy sector in the Middle East and assesses its future shape in the 21st century.

BEYOND THE HORIZONMiddle East oil producers are looking beyond their dependence on fossil fuels to sustain an energy future

Preface

Energy in the 21st Century / 3www.meedmashreqconstructionhub.com

EXECUTIVE SUMMARY

■ Rising population and major industrial projects are driving increased demand for electr-city in the GCC. Based on current growth rates, MEED estrimates that installed electricity generation capacity in the Middle East and North Africa region must increase by about 40 per cent by 2025.

■ Expenditure for energy supply capacity in the Middle East has largely focused on huge capital investments in oil and gas-fuelled power and desalination plants, driven by gov-ernment utilities. However, renewables are increasingly contributing to the energy mix

■ The falling cost of renewables, reinforced by private sector involvement and political will for carbon-free energy, is setting up the Middle East to be a global power in renewable energy development

■ As variable and non-synchronous sources of generation, integrating solar photovoltaics and wind energy systems creates a number of technical challenges for system operators. Careful system planning and operation can help overcome these challenges

■ Electric vehicles find increasing favour following widespread availability, new models and cheaper battery costs. Renewable energy is seen as an effective solution for ‘clean electricity’, thereby reducing the dependency on internal combustion engine vehicles

■ Improved energy storage will help grids manage fluctuating renewable energy supply by allowing wind and solar power to be stored for later use, while developments in battery and other storage devices will enable vehicles to travel longer distances on a single charge

■ Digitalisation has helped optimise performance in both conventional and renewable en-ergy plants, through sensors and predictive analysis. Digital disruption is also supporting the development of smart power grids, which provides benefits such as better electricity transmission, reduced peak demand and integration of renewable energy systems

4 \ Energy in the 21st Century

CONTENTS

06-09MIDDLE EAST TRENDSRegional stakeholders shape the future of energy

10-11TECH TRANSFORMATIONDigital disruption creates new avenue for power generation

12-14ENERGY DIVERSIFICATIONOil producers gradually shift towards cleaner sources

15-16FUNDINGFinance models for future energy projects

17-19FUTURE OF TRANSPORTElectric vehicles turn the tables on the energy industry

20-21SOLAR & WINDEffective integration limits success of renewable sources

22-23DECOUPLING UTILITIESSeparating water and power leads to operational efficiency

24-25NUCLEAR ENERGYThe UAE leads the region’s atomic drive

26-27STORING ENERGYUtility-scale batteries are neces-sary for renewables to flourish

28-29UPGRADING TO 5GThe latest generation of mobile networks is upon us

30LOOKING AHEADForecasting the region’s energy landscape in the 21st century


While a clean energy future is the end goal, hydrocarbons will be called on to finance the region’s economic transformation

CREATING A LOW-CARBON ECONOMY

T he Middle East’s energy developments present an odd paradox. To escape from dependence on volatile oil and gas prices, the region is see-ing a new wave of investment in energy pro-jects. This evolution makes more sense when

we realise that in building a new economy, the leading countries are trying to build on a foundation of strength.

Key trendsThere are four key energy trends that will dominate in the decades to come. The first is economic might, and so energy demand is shifting ever more towards Asia, and particularly in favour of the giants China and India. While China’s demand growth is slowing, it is from a much higher base than its early 2000s’ boom. India is set to be the world’s fastest-growing area for energy consumption, at 3.1 per cent annually to 2040, according to BP’s latest energy outlook released in February 2019.

Secondly, the rise of North American shale oil and gas has turned the continent from an importer into a growing exporter of oil and liquefied natural gas (LNG).

Thirdly, there are concerns over future oil demand, given the competitiveness of electric vehicles, pressure to act on climate change and worries about plastic pollution.

Fourthly, an environment of low oil prices paired with the financial challenge of relying on wildly varying com-modity prices has emphasised the need for the Middle East to generate more diverse economic growth, exports and employment.

In response, the region’s energy industries show a sharp divergence. Some are leading the change, some are adapting, while others, often through no fault of their own, remain in stasis. There is only a limited window of time for the laggards to get moving or they will fall behind irreparably.

Middle East governments’ new strategies are carried out by their national oil companies (NOCs), sovereign wealth funds and state-owned utilities, either inde-pendently or in cooperation with international investors guided by policy. They have to create new commercial relationships; generate value beyond the simple export of crude oil and gas; and adapt to a low-carbon future.

Sustaining productionThe leading regional producers—Saudi Arabia, Iraq, UAE, Kuwait, Iran and Qatar—are not short of resources. State behemoth Saudi Aramco’s recent reserves audit indicated a slight rise on its previous official numbers, to 268.5 bil-

Overview

Value of oil and gas projects planned or underway in the Mena region ($bn)

140

120

100

80

60

40

20

0

UAE

Kuw

ait

Saud

iAra

bia

Bahr

ain

Algeria

Jord

an

Leba

non

Iran

Oman

QatarIraq

Libya

Egyp

t

Mor

occo

Tuni

sia

Source: MEED Projects

53

69

97

138

76

119

28

7.1 5.4 2.03.5 1.7 1.2

17

51


lion barrels of oil, more than a 70-year supply at current production rates, and 325 trillion cubic feet of gas.

Iraq will lead the region’s production growth with investments by Asian, Russian and Western firms in its giant fields, while independent companies lead the au-tonomous Kurdistan region’s renewed expansion. Security has greatly improved and new technocratic ministers in electricity and oil understand the challenges. However, the country’s energy infrastructure remains ramshack-le, its commercial terms uninviting, and corruption and bureaucratic inertia are still severe problems.

Next-door Iran remains tied down by US sanctions, exacerbated by its own political infighting. Despite improved domestic capabilities, shortage of technology and finance coupled with closed-off export markets will continue to prevent it from realising its potential.

Kuwait’s upstream production plans, after a brief boost, remain mired in parliamentary wrangling. Meanwhile, the small petroleum industries of Yemen and Syria, devastat-ed by war, show tentative signs of recovery in places.

Some countries’ fields are becoming mature and all seek to save costs and stretch their human resources fur-ther, putting more stress on the deployment of advanced technologies: digitisation, automation, artificial intelli-gence and drones.

Oman has been a regional leader in enhanced oil recovery (EOR), using solar-generated steam for heavy oil production and the injection of miscible gas and poly-mers. The sultanate has also pioneered the extraction of

gas from tight (low-permeability) reservoirs, helping to turn around declining exports.

Bahrain hopes for world-first production of offshore unconventional oil and gas. Shale gas is a key part of Ara-mco’s plans to double gas output over the next 10 years.

These upstream plans represent improvements to the long-time core businesses of these countries. Beyond this, the most progressive NOCs are becoming more commercially minded, finding new partners and actively investing over-seas. The proposed initial public offering (IPO) of Saudi Aram-co has been rescheduled for early 2021, but Energy Minister Khalid al-Falih told the Financial Times in early February that “the world is going to be Saudi Aramco’s playground”.

Channelling downstreamDownstream—oil storage, refining and petrochemicals—has for decades been a major focus for Aramco, with refineries in the US and China, among others, as well as

“Most countries in the region are seeking to save on government budgets and energy waste, and preserve hydrocarbons for export by slowing unsustainable demand growth”


for Kuwait Petroleum, as it seek to anchor and perhaps create demand in the most important markets.

But Aramco is now also open to worldwide upstream, the exploration and production of oil and gas, with ambi-tions to create a global gas business to compete with the Western supermajors. It has looked at LNG opportunities in the US and Russia. It will also become a world-leading petrochemicals firm with the acquisition of the majority 70 per cent stake of compatriot Saudi Basic Industries Cor-poration from the Public Investment Fund (PIF), freeing the latter to pursue new targets such as Uber and Tesla.

Adnoc strategyAbu Dhabi National Oil Company’s (Adnoc’s) transforma-tion has been the most striking. From a staid and essential-ly domestic company, it has recently started a push into international downstream too, partnering with Aramco for a $44bn refinery and petrochemicals project in the western Indian state of Maharashtra. It has launched an IPO of 10 per cent of its fuel retail arm, sold 35 per cent of its refining arm to Italian supermajor Eni and Austria’s OMV for $5.8bn, and announced a $45bn plan to create what it calls the world’s largest refining and petrochemicals hub at Ruwais in western Abu Dhabi.

CEO Sultan al-Jaber highlighted the company’s “strategy to grow its presence across the energy value chain and se-cure greater market access for its products, as well as the integral role that partnerships will play in this journey”.

In its core upstream business, Adnoc has restructured all of its expiring concessions, swapping out older share-holders such as Shell and ExxonMobil for a bigger role with long-term partners Total and BP, and new entrants

Overview

including Eni, Spanish refiner Cepsa—and, most signifi-cantly, Asian firms China National Petroleum Corporation, Zhenhua, GS and KNOC of South Korea, and a consortium of Indian state oil companies.

It has also announced a massive expansion of gas pro-duction in a bid to be self-sufficient, by developing both its costly offshore sour gas fields (with a high content of toxic, corrosive hydrogen sulphide) and onshore shale gas resources. And it is saving on greenhouse gas emissions by capturing carbon dioxide from a steel plant for EOR.

Qatar Petroleum’s approach has reflected its different circumstances. With a mature and slowly declining oil sector, it has taken larger stakes at home as international firms’ contracts have expired. It has taken steps towards a major expansion of its core LNG business, firstly by an-nouncing an expansion from its current 77 million tonnes a year (t/y) capacity to 110 million t/y by 2023-24, and secondly by committing in early February to its $10bn, 16 million t/y Golden Pass LNG export project with Exx-onMobil in Texas.

A growing needThese moves by the NOCs do not take place in a vacuum. Most countries in the region are seeking to save on gov-ernment budgets and energy waste and preserve hydrocar-bons for export by slowing unsustainable demand growth.

Iran reformed energy subsidies in 2010, with mixed success, but more recently, the UAE and Oman have linked road fuel prices to world levels, and electricity and water tariffs have been raised across the region. Energy efficiency policies include ‘green building’ codes, appliance efficiency standards, public transport systems such as urban metros,

Value of power projects planned or underway in the Mena region ($bn)

180

160

140

120

100

80

60

40

20

0Wind

power farmHydro

power plantWaste-

to-energy power plant

Geothermal power plant

Oil/gas power plant

Nuclear power plant

Solar power farm

Coal power plant


23

151164164

7146 1


even lower. Bids below 2 $c/kWh are likely this year. Saudi Arabia set a record low onshore wind price of 2.13 $c/kWh in January.

With Jordan and Egypt moving ahead enthusiastically with solar and wind, and Oman finally making pro-gress on renewable electricity too, 2019 is likely to be the year in which other regional countries awaken to the potential.

This success points to a contradiction. Middle Eastern states have the world’s lowest production cost for oil in the world, yet ultimately they are all chasing a declining pool of demand, whether that decline begins in the 2030s or 2040s. They are expanding in petrochemicals, and mov-ing into more complex and demanding speciality products. They see the market opportunity in gas, yet except for Iran, Iraq and Qatar, they have lost the advantage of low-cost resources. Gas, too, will eventually have to adopt carbon cap-ture and storage to remain compati-ble with climate targets.

Hydrocarbons will be called on to finance the region’s economic transformation. The end-goal is a sophisticated, clean energy economy that supports a wealthy yet sus-tainable lifestyle. While some Middle East states have taken their first steps towards that,

and district cooling plants for air conditioning.More dramatic has been the rise of renewables. Dubai

set a world record for the cheapest solar photovoltaic power in 2014, at 5.85 $cents a kilowatt hour ($c/kWh), then halved that cost with bids in 2016, and also attract-ed a record low bid for concentrated solar power in 2017.

Saudi Arabia and Abu Dhabi have subsequently gone

Type of power projects planned or underway in the Mena region

Waste-to- energy power plant 1%

Wind power farm 13%

Coal power plant 3%

Geothermal power plant

1%

Hydro power plant 4%

Nuclear power plant 5%

Oil/gas power plant 34%

Solar power farm 35%


Robin Mills is CEO of Qamar

Energy and the author of The Myth

of the Oil Crisis


Technology

Digitalisation can help both conventional and renewable power plants to run more smoothly

DISRUPTING THE EQUATION

T echnological innovation has always led hu-mans to new ways of producing and consum-ing energy. In pre-modern times, windmills made the processing of grinding grain and pumping water much easier, thereby spurring

economic development. The commercial introduction of electricity transformed human productivity, while the internal combustion engine revolutionised transportation.

Today, new technologies will play a central role as we stand at a crossroads as we address climate change while simultaneously enabling sustainable development around the world. These technologies will again change human economic activity by impacting both sides of the energy generation-consumption equation.

While renewable power, with its increasing efficiency and declining costs, as well as electric vehicle advances, and building design and management are vital develop-ments, topping the list are two technologies that could be the most impactful: digitalisation and energy storage.

Digitalisation benefitsLike electrification, which began more than 150 years ago, digitalisation is liable to touch almost every aspect of our lives—including the energy value chain. On the production side, technologies such as digital twins, Big Data analytics and software, and open, cloud-based internet of things (IoT) operating platforms such as Mind-Sphere allow for more efficient energy generation.

Both conventional and renewable power plants can use digitalisation to optimise performance while lowering

costs. Using predictive analytics, operators can anticipate failures and make repairs before anything goes wrong, thereby improving uptime and output.

Along the energy value chain, digitalisation enables the development of smart power grids that give insights that can be translated into system-wide efficiencies and allow operators to move in real time to efficient-ly balance supply and demand. This can reduce fuel consumption, allow for improved capital and operation-al cost management, and lower emissions—all while ensuring availability of power supply. Smart grids can also empower demand reduction, for instance through pricing mechanisms.

For utility customers, digitalisation means smart meters in homes and businesses that give insights into ways to lower consumption. Industrial customers and manufac-turers can use digitalisation to improve manufacturing processes, increase output, reduce inputs and costs, and enhance the quality of their goods.

We expect the Middle East to require a total of 483GW of power generation capacity by 2035, an addition of 277GW from 2016. Within this, the share of renewables in the power mix is expected to more than triple from 5.6 per cent (16.7GW) in 2016 to 20.6 per cent (100GW) in 2035. This increase highlights the need for reliable and efficient energy storage solutions, as well as mixed power generation sources to overcome the intermittent nature of renewables and achieve grid stability.

Storage beyond batteriesEnergy storage is another key technology transforming the energy value chain. On the generation side, improved energy storage can help grids better manage fluctuating renewable energy supply by allowing wind and solar power to be stored for later use. Today, this electricity must be fed into the grid, whether it is needed or not.

On the demand side, improvements in battery and other storage devices could drastically change transportation, with long-lasting, high-capacity batteries allowing cars and trucks to travel longer distances on a single charge. It also could change the way we use many other powered devices and how individual customers draw electricity from the grid through the use of onsite battery storage.

“… Digitalisation enables the development of smart power grids that give operators insights that can be translated into system-wide efficiencies that allow operators to move in real time to efficiently balance supply and demand”


High-performance lithium-ion batteries offer some of the best options available today, but as with other with traditional storage solutions, including capacitors, molten salt storage and compressed-air storage, they offer stor-age periods measured in minutes or hours.

Hydrogen storageSiemens’ researchers are looking at solutions that will convert electricity into forms of energy that lend themselves to long-term storage, such as hydrogen. By converting fluctuating power from renewable sources into hydrogen (or hydrocarbons), surplus energy can be flexibly monetised, stored using existing natural gas infra-structure and re-electrified in gas turbines.

One notable benefit of this is to create a future for gas turbine plants—even in a decarbonised world. Hydrogen can also be used to power transportation ranging from cars to trains.

In a significant move for the region, hydrogen storage is becoming a reality in Dubai. Siemens is working with Dubai Electricity & Water Authority (Dewa) and Dubai Expo 2020 to develop the Middle East and North Africa’s first solar-driven hydrogen electrolysis facility at the Mohammed bin Rashid al-Maktoum Solar Park in Dubai. The hydrogen electrolysis facility, which broke ground

in February 2019, aims to test and showcase an inte-grated megawatt-scale plant to produce hydrogen using renewable energy from solar photovoltaics located at the park. The pilot project will produce, store and deploy the hydrogen gas. Uses include providing fuel for power generation and transportation, or as an input for industry.

The hydrogen electrolysis plant not only embodies both digitalisation and energy storage, but also represents the distinct transformed energy landscape we are likely to see, all carried forward to powerful new technologies. It also means we will see more sector coupling – the concept of interconnecting energy-consuming sectors, such as buildings, trans-port and industry, with the power- producing sector.

Sector coupling allows us to get the most out of excess gener-ation with the help of distributed energy systems. The result will be a future of power generation that helps us address climate change, while also enabling communities around the globe to pursue their sustainable development.

Dietmar Siersdorfer is

CEO of Siemens in the Middle East


Renewables

“The UAE currently produces more solar power than any other GCC country at prices that have made it compelling for all its neighbours to follow its footsteps”

The spread of renewables across the region is driven by the slow but steady pursuit of energy diversification

CLEANER PROSPECTS AHEAD

T he energy revolution is truly underway across the Middle East as the energy sector embraces the opportunity offered by signif-icant cost reductions in renewable energy. Countries dubbed as the leading and low-

est-cost oil and gas producers, with the majority of their wealth and economic growth tied closely to substantial oil and gas resources, are now starting to add renewable energy to their fuel mix to generate power within their own countries and benefit from a progressive reduction in the cost of generated electricity. The swing to renew-able energy will be faster than can be reasonably fore-cast, as evidenced by the recent spectacularly increased pace of activity in certain countries in the region.

The breaking of the Middle East’s reliance on fossil fuels through resource diversification is driven by several factors; first is the recognition that with all that technological advances can offer today, oil has a higher value in being converted to chemicals than to power. Renewable energy, on the other hand, is still considered as more competitive to supply the energy we consume while the sun is shining than fossil-fuel-generated elec-

tricity, even if we were to price fossil fuels at little over the cost of extraction.

Next, making electricity available at the lowest possible cost (without subsidy and at full cost reflective rate) will have a multiplier effect on social and econom-ic development given the significance of the resource input on all human endeavour. Finally, there is a clear acknowledgement of the need to reduce greenhouse gases by increasing clean energy content in the fuel mix to mitigate climate change.

This fuel mix transition is against the backdrop of increasing demand for electricity and water (the latter

The 950MW fourth phase of the Mohammed bin Rashid al-Maktoum Solar Park is the largest single-site concentrated solar power plant in the world


hours with CSP technology, allowing it to be deployed at larger scales. Aggregately, batteries, molten salt and other technologies provide an intermediary storage solution to eliminate the intermittency issue of solar and wind-generated electricity.

The cost of thermal storage is declining and can now be less than 7 $cents/kWh, as utilised in Noor Energy 1. Battery cost—with electron battery technology likely to come on board—is also forecast to decrease to an estimated $70/kWh by 2030, a 67 per cent cost reduc-tion from today, making it possible to supply power reliably to the grid around the clock at an increasing scale. These technologies offer the strong value prop-osition of being lower cost than fossil fuel generated power, totally devoid of price volatility and environmen-tally sustainable.

Socio-economic developmentThe continuing need for increased capacity and transfor-mation of the fuel mix has also opened up tremendous opportunities to increase employment, foster industrial-isation and generate overall prosperity within societies in the region. The evidence is compelling. As document-ed in the International Renewable Energy Agency’s (Ire-na’s) Jobs Report, renewable energy deployment across the world accounted for an additional 10.3 million jobs in 2017. The report goes on to estimate that decarbon-isation of the global energy system could create up to 28 million jobs by 2050, highlighting the significant benefits of nurturing and investing in the sector.

Irena’s recent Renewable Energy Market Analysis: GCC 2019 report reveals deeper analysis on the so-cio-economic benefits gained from renewable energy

being intrinsically linked to energy due to the need for desalination) due to a very young population, with up to 30-40 per cent below the age of 15. These demograph-ics will ensure soaring demand over the next decade as more and more people move into the employable and economically active bracket; thus, fuelling the need for social services and for industrialisation and economic activity expansion.

In simple terms, increasing adoption of renewable energy in the Middle East will diversify the energy mix, contribute to sustainable development and improve socio-economic conditions across the region.

State of renewable energy The Middle East has considerable renewable energy potential and is well-placed to exploit solar energy in particular, given that the sun is shining most of the year in this part of the world. As hub heights increase and technological advancements keep bringing cost down, there is also growing room for wind energy to serve as a primary power source in countries such as Jordan, Saudi Arabia, Kuwait and Oman.

The UAE, over a span of three years, has become the host of nearly 80 per cent of solar photovoltaic (PV) energy capacity in the Gulf region. It will also soon be home to the world’s largest single-site concentrated solar power (CSP) plant in the world: the fourth phase of the Mohammed bin Rashid Solar Park – 950MW Noor Energy 1, which is being developed by Dewa and Acwa Power. The UAE currently produces more solar power than any other GCC country at prices that have made it compelling for all its neighbours to follow its footsteps.

Although the region is keen on utilising PV as a favourable solar technology since it is fast emerging as the cheapest source of electricity generation, CSP is also galvanising attention. It has the capability to offer 15 hours of storage, making it a dispatchable alternative to natural gas, even to serve the peak evening demand. Record-breaking bids in renewable energy auctions, par-ticularly in the UAE and Saudi Arabia, have consistently challenged cost, leading to the lowest global tariffs for both PV and CSP-generated electricity; thus, helping to accelerate the much-needed energy transition and de-carbonisation of electricity generation across the world.

Solar power was once perceived as incapable of entirely removing the need for conventional power sources to keep the lights and air conditioning units switched on once the sun is down. However, small-scale batteries and innovative technology such as the use of molten salt have now come into play. Molten salt is able to hold the heat of the sun captured during daylight


installations in the Gulf. To state the facts, by 2030, renewable energy could save 354 million barrels of oil equivalent in fossil fuel consumption, reduce emis-sions by 136 million tonnes of carbon dioxide, create 220,500 jobs and cut water withdrawals in the power sector by 11.5 trillion litres (17 per cent reduction).

That only accounts for the Gulf region, and the mind boggles at the potential of figures that could be extrap-olated onto the wider Middle East. These figures also show that deploying more renewable energy would have the added benefit of aligning country objectives to those of wider global as targeted by the UN Sustainable Development Goals.

What the future holdsAs the demand for electricity and water soars over the next decade, governments’ willingness to eliminate subsidies and seek full cost recoverable tariffs will intrinsically promote efficiency of utilisation and shape consumer behaviour.

The continuing rapid advances in renewable energy technology, digitisation, artificial intelligence, long-dis-tance direct current transmission, solid-state electronics in grid management to support increasingly efficient distribution, increased scale of rooftop PV applications along with household-level battery storage facilities,

and innovation in business models will all help to reduce the cost of both electricity and water, as well as im-prove quality of service and access to power.

The viability and efficiency of the sector will continue to be enhanced as the public and private sectors become more confident in working together, reciprocating respect for one another’s capability and capacity to accept, mit-igate and manage risk. This will ensure that the required level of funding keeps being provided essentially by pri-vate sources for these vastly capital-intensive sectors and much-needed skills are marshalled.

As advances in technology, meth-ods of construction and business models continue to drive down costs for renewable energy and wa-ter desalination across the board, Acwa Power remains committed to reliably delivering electricity and desalinated water at the lowest cost, while striving to increase local content and maximise local employment for a healthier, wealthier and happier future, not only for the people of the commu-nities and countries we serve, but also for future generations.

Renewables

Paddy Padmanathan

is president and CEO of

Acwa Power


As the nature of power projects shifts in the Middle East, energy stakeholders may be forced to adopt better finance models

FUNDING THE FUTURE

T raditionally, the Middle East has adopted an older model of government financing and procurement to develop their power projects. Oman and Abu Dhabi were the first to embark on an independent power producer (IPP) pro-

gramme nearly two decades ago. This resulted in equity participation from the international developer communi-ty and, after a few years of successfully ‘banked’ projects, we saw strong interest from local and regional investors.

The larger impact, of course, was the role of banks, which financed about 70-80 per cent of project costs, over long tenors of approximately 20 years. This represented a paradigm shift in the traditional financing model.

Over a period of time, this IPP model has become the de facto standard across the GCC. The larger pipeline of projects has attracted a wider community of developers and lenders, which in turn increased competition and led to the envelope being pushed—leverages climbed

to 85 per cent, equity bridge loans were introduced, ter-minal values increased aggressively and Islamic finance pools were tapped for specific tranches.

The advent of renewables, first launched at utility-scale by Dubai Electricity & Water Authority (Dewa) about five years ago, seems to have started an avalanche of similar projects in every GCC nation.

While the overall transaction structures are quite simi-lar, there are some specific differences. Successful bidders have been focused and creative in tapping into financing pools. We are already seeing some interesting trends.

Some jurisdictions attract Chinese financing; some are reliant on export credit agency financing; certain other jurisdictions attract Japanese financing; Saudi and Omani markets are also reliant on a fair amount of local bank participation.

This typically follows the developer profile, their intent and competitive positioning in those markets.

Finance


What does the future hold?We know that there are liquidity concerns in the short term, and there are simply too many competing projects. This has already resulted in mini-perm financing becoming the order of the day. Government procurers cannot avoid it, developers have to factor this into account and lenders more often than not start with this position.

Yet, we have not seen enough attention paid to the looming question of refinancing. My personal view is that one potential solution has not been tested sufficiently—project bonds. This could well be a pool that will emerge quickly. It requires some work, but I believe there will be decent appetite. Most GCC government paper continues to be attractive and some offtakers are in a good financial position. The fact that the IPP has a few years of success-ful operations at the time of refinancing, and backed by a long-term power-purchase agreement (PPA) will certainly be helpful.

Local pension funds represent a large pool of financ-ing, which has not been tapped into in this sector. Once again, it is my personal belief that they could supplement the local lending pool in most GCC jurisdictions, and that the effective interest rate could still be potentially attractive on a local pension fund on the basis of risk- adjusted returns.

Taking this argument further, international insurance players and pension funds could also present an alterna-tive source for developers in the near future.

The suggestions above try to tackle the larger issue of new sources for debt financing, but there is also a similar issue on the equity side. With the exception of Oman, governments take a large equity position (typically 50 per cent or more) in the project companies. While this is understandable during the initial years of project setup and operations, it may be a good idea for governments to divest a large part of their holding to the public through

the local capital markets (the Oman model is a good example). This delivers three important results—allows the citizens to participate, deepens the local bourse and reduces government commitments.

Finally, looking across the waters, it may not be a bad idea to create a regional green fund, much like the South Korea-based Green Climate Fund or the Green Investment Bank in the UK, which could participate in such projects across the region.

Producing consumersAnd let’s not forget about the impact of prosumers (producing consumers). The rooftop programme is an initi-ative launched in several countries, and while this is relatively small, it is beginning to make a difference.

Dubai now has almost 50MW [of rooftop solar power], and this will only grow. Such rooftop solar capac-ity is being financed by a complete-ly new lending group—either the prosumers themselves or through market aggregators under the own-to-lease model.

This is a relatively new source of financing that certainly crept up under the radar and cannot be ignored going forward.

“… There are liquidity concerns in the short term, and there are simply too many competing projects. This has already resulted in an interesting trend—mini-perms are the order of the day”

Finance

Rajeev Singh is a partner for infrastructure advisory and

project finance at Ernst & Young

Middle East


A combination of rising automaker spending and growing charging infrastructure is fuelling the adoption of electric vehicles

ELECTRIC CAR TIPPING POINT NEARS

Electricity is the only widely available and domestically produced form of energy for transportation that addresses the simultaneous needs for fuel diversity, energy security, reduced greenhouse gas emissions and improved air

quality. The transition of transportation energy from petroleum to electricity represents a paradigm shift for electric utilities to the role of fuel provider for vehicles.

Electric vehicles (EVs) are appearing around the world in a variety of shapes, sizes and forms, ranging from electric sports cars to electric buses and ferries. The per-formance and operational benefits of an electric motor also help reduce costs for all customers, while improving

air quality and reducing greenhouse gases (GHGs) for all of society. So, do recent events indicate that we are ap-proaching a tipping point for widespread, global adoption of electric transportation? Consider the following trends:

Rising spendingAutomakers are spending billions of dollars to develop electric cars, trucks, buses and off-road vehicles. In one of many examples, Bloomberg Markets reports that Volkswagen AG secured $25bn in battery supplies to back its push to build up to three million EVs a year by 2025. According to a Reuters study, automaker investment in batteries and EVs now totals $90bn.

Transport

Figure 1: By 2020, average electric range of EVs will reach 230 miles, and 63 different battery EV models will be available worldwide (more than 40 per cent of which will be SUVs and crossovers). Source: EPRI

Vehicle type

Num

ber

of m

odel

s av

aila

ble

Ave

rage

ele

ctri

c ra

nge

68

112109

101 101

129

151

185198

233239 240

240 240

220

200

180

160

140

120

100

80

60

40

20

0

65

60

55

50

45

40

35

30

25

20

15

10

5

0

SUV/crossoverSedanCompact/hatchbackSubcompactSports carMinivan/wagon/vanVan

SUV/crossover: 24

2010 2014 20182012 2016 20202011 2015 20192013 2017 2021 2022 2023

Sedan: 22

Compact/hatchback: 10

Sports car: 2

Subcompact: 2


Transport

“With continued declines in battery costs, as well as new model designs and more widespread availability, electric vehicles will soon become cost-effective alternatives to conventional internal combustion engine vehicles”

Growing number of EVsAutomakers are now offering, or soon plan to offer, a large number and wide range of EVs to the public and businesses. To fulfil the growing demand for EVs, auto-makers such as Tesla, Volkswagen, Ford, Volvo, BMW, Mercedes, Porsche, Maserati and others have announced various global EV plans. Nearly 140 different EVs, includ-ing battery EVs and plug-in models, will be available by 2023 at US car dealerships, and more than 40 per cent of those will be SUVs and crossovers.

What’s more, we are now seeing the arrival of mass market-priced vehicles (about $35,000-$40,000). The av-erage electric range of EVs will be roughly 350 kilometres by 2020. These are huge developments in this market (see Figure 1).

Countries weigh inCities and nations around the world are declaring their plans to phase out petroleum-fuelled vehicles and phase in EVs—often on aggressive schedules. The list of coun-tries with requirements or plans includes France, Germa-ny, UK, Norway, India, China, the Netherlands and others. Quoting Bloomberg New Energy Finance, journalist Jere-my Hodges points out that China adds the equivalent of a London bus fleet every five weeks (9,500 electric buses). Major cities, including Paris, Madrid, Athens and Mexico City, are moving towards banning diesel cars.

More charging infrastructureCities, states and countries are adopting and installing a broadening system of EV charging infrastructure. About $2bn of the $14.7bn mitigation and zero-emission vehicle investment settlement with Volkswagen AG is allocated to beefing up the US’ EV charging infrastructure, while an-other $2.7bn is allocated to reducing emissions (nitrogen oxides). As of October 2018, North American utilities were proposing about $3.7bn in EV charging infrastructure.

At the same time, private companies and others contin-ue to advance charging technology and lower costs. For example, ChargePoint recently unveiled a 2MW charger for electric semi-trucks and electric aircraft. Daim-ler-Benz, Freightliner and the CharIN group are working towards a 4.5MW connector, theoretically for long-haul Class 8 trucks.

Advancing autonomyWhile highly uncertain, some analysts argue that the impending proliferation of autonomous vehicles is likely to further stimulate adoption of electric transportation. A Brattle Group brief published in March 2018 provides three reasons why autonomous vehicle technology could accelerate EV adoption:• Help ease customer concerns over EV range and main-tenance requirements• Improve EV economics via increased vehicle utilisation• Help enhance charging infrastructure by optimising charging patterns

Impact on energy supply and demandElectric transportation will have a big impact on final energy supply and demand. The Electric Power Research Institute’s (EPRI’s) US National Electrification Assessment (USNEA) examined customer adoption of electric end-use technologies over the next three decades, along with key implications for efficiency, the environment and the grid.

The transportation sector, especially light-duty cars and trucks but other segments as well, represents the single largest opportunity for efficient electrification. More than 40 per cent of US final energy is used for transportation, and nearly two-thirds of that (a quarter of US total final energy) is consumed as liquid fuels for light-duty passen-ger vehicles.

With continued declines in battery costs, as well as new model designs and more widespread availability, EVs will soon become cost-effective alternatives to conven-tional internal combustion engine vehicles (ICEVs). Their slightly higher purchase price, charging equipment costs and occasional range limitations will be more than offset by lower operating costs, in terms of both fuel and main-tenance, for most drivers.

Light-duty individual vehicles sit parked for more than 20 hours each day; this provides plenty of excess capacity and time to fuel many EVs.

The USNEA ‘reference’ scenario projects that light-duty EVs will comprise 75 per cent of new vehicle sales and 70 per cent of vehicle miles travelled (VMT) by 2050, compared to essentially zero today (see the left side of Figure 2).


The study also predicts that this shift, combined with large efficiency improvements in internal combustion en-gines, will decrease final energy use for light-duty vehicles by 60 per cent by 2050, despite an assumed increase in VMT of almost 30 per cent (see the right side of Figure 2).

A growing synergism Growth in renewable power generation (for example, wind and solar) provides ‘clean’ electricity to power the rising amount of electric transportation.

EPRI and the Natural Resources Defence Council produced a report titled Environmental Assessment of a Full Electric Transportation Portfolio to provide in-depth analysis of the environmental impact of electri-fying a range of vehicles, including US light-duty and medium-duty transportation and industrial equipment such as forklifts. The study simulated emissions and air quality impacts of a significant shift from ICEVs to EVs and equipment.

The study based its analysis on projections that the electric grid will rely more on renewable energy and non-emitting power generation. It corroborates earlier findings that a decarbonising grid accommodating a fleet of EVs would reduce emissions relative to scenarios in

which transportation, industrial and other fleets continue to rely primarily on petroleum fuels. With the widespread adoption of EVs, greenhouse gas emissions can be re-duced, even when compared with more efficient conven-tional vehicles. Electrifying vehicles and non-road equipment will lead to better air quality.

Potential scenariosThe study analysed two potential scenarios of the future electric sector. In the ‘base GHG’ scenario, the study estimates that by 2050, the elec-tricity sector could reduce annual greenhouse gas emissions by 1,030 million metric tonnes relative to 2015 levels, a 45 per cent reduction.

In the ‘lower GHG’ scenario, the study estimates that by 2050, the electricity sector could reduce annual greenhouse gas emissions by 1,700 million metric tonnes relative to 2015 levels, a 77 per cent reduction.

Dan Bowermaster is research pro-gramme man-

ager for electric transportation at the Electric

Power Research Institute

Figure 2: In EPRI’s US National Electrification Assessment, the reference scenario for light-duty vehicles projects that 70 per cent of vehicle

miles travelled in 2050 will be EVs (left side of figure), and final energy for light-duty vehicles will decrease by 60 per cent, due to electrification

and efficiency improvements (right side of figure). Source: EPRI

Billi

on v

ehic

le m

iles

trav

elle

d

SERVICE DEMAND

ICEV

EV

PHEV

LIQUID FUELS

ELECTRIFICATION

ELECTRICITY

FINAL ENERGY

Qua

d BT

Us

2015 2020 2025 2030 2035 2040 2045 2050 2015 2020 2025 2030 2035 2040 2045 2050

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

20

15

10

5

0


Rapid growth in solar photovoltaics (PV) and wind farms across the world has been driven by sharp falls in technology cost and increased concern about climate change.

Despite the global growth, solar PV and wind are still nascent forms of energy in the Middle East. They form less than 1 per cent of the electricity generation mix today compared to 13 per cent in Europe.

There has been much hype and many conferences organ-ised on this topic. However, the reality is that the Middle East is playing catch-up with markets such as Ireland, Por-tugal and Denmark, which now produce more than 25 per cent of their electricity from solar PV and wind.

Drivers for changeThere are two underlying trends that mean this picture is likely to change drastically in the coming years. The first is a rapid drop in the costs of solar PV and wind. This has been driven by falling panel prices, falls in the financing costs and high developer competition.

Secondly, greater value is being placed on gas reserves in the region. Driven by new gas reserves becoming more expensive to exploit, gas is increasingly being seen as a tool to promote industry (such as petrochemicals) and employment. Continued development of the international liquefied natural gas market makes the option of export-

While the Middle East is playing catch-up with other international markets, the growing momentum behind solar and wind energy is unstoppable

RENEWABLE ENERGY ON THE RISE

Solar and wind

ing gas more attractive. These trends mean that solar PV and wind are now unquestionably the cheapest source of electricity in the region.

Challenges facedSolar PV and wind are variable, non-synchronous sources of generation, which create several technical challenges for system operators (summarised in Figure 1).

International experience is that these challenges can be overcome with careful system planning and operation. There are large markets today where up to 60 per cent of instantaneous demand can be met through wind and solar PV. This limit is being constantly pushed and as the Middle East deepens its solar PV and wind penetration, it will be able to learn from other markets.

Enablers of integrationThe march of wind and solar PV in the region seems un-stoppable. The resource is excellent, finance costs are low and developer interest is high.

The main long-term barrier to renewable deployment is potential system integration issues. Figure 2 breaks down the options for integration and their enablers.

We believe that an evolution in the regulatory frame-work is likely to be a key enabler of renewable integration. The long-term power-purchase agreement (PPA) tender

Source: BP world energy statistics 2018

Middle East’s wind and solar energy contribution to the global electricity generation mix

Nor

th

Am

eric

a

CIS

Latin

A

mer

ica

Euro

pe

% g

ener

atio

n fr

om w

ind

and

sola

r

Afr

ica

Mid

dle

East

Asi

a Pa

cific

13%

7.2%

5.1% 5%

2.1%

0.5% 0.2%

Source: Pöyry (coal priced at $3.5/mmbtu and gas at $5.5/mmbtu)

Levelised capexNon-fuel opex

Fuel opexBattery cost

Levelised cost of electricity of different forms of technology ($/MWh)

Ope

n-cy

cle

gas

turb

ine

Roof

top

PV

Conc

en-

trat

ed s

olar

po

wer

Nuc

lear

Coal

Com

bine

d-

cycl

e ga

s tu

rbin

e

Win

d

Util

ity P

V

PV +

4h

bat

tery

st

orag

e

82

6759

55

46 45

71

2619


model has been very successful and has delivered world record-low tariffs for the first renewable projects. This model has significant limitations for technologies that can support renewable integration. The standard PPA structure is rigid and may not provide the full flexibility of the asset to the offtaker. A short-term signal is needed to incentiv-ise interconnector flows and demand-side response. This

could be from placing an hourly value on electricity— either from actual spot pricing or shadow pricing.

Some private sector companies in the region have been lukewarm on the prospect for a spot market in the region. The poor return on investment from power generation in European wholesale markets is cited as a cause for con-cern. However, when properly implemented, a spot market has the potential to unlock the future flexibility needed and allow the private sector to add additional value.

Oman will continue working towards making its spot market live in 2020 and Saudi Arabia is again considering options for a market opening. The future may be closer than some people think.

The Middle East’s warm and arid climate means that electricity con-sumption to power air-conditioning and desalination will be structurally higher than elsewhere in the world. This makes the impact of electricity prices far higher than elsewhere.

Effective system planning and re-newable integration can harness the solar and wind resources and deliver reliable, low-cost electricity that is essential for the future economic development of the Mena region.

Figure 1: Challenges created by solar PV and wind systems

milliseconds

seconds

minutes

hours

SYSTEM INERTIA PV and wind output is non-synchronous meaning lower inertial response during frequency events

PRIMARY RESERVEDust storms could lead to rapid output reductions which require primary (and secondary) reserve

STANDING RESERVEVariability in irradiance and wind conditions could lead to a greater requirement for standing reserve

RAMPINGPV and wind output decreases in the evening as demand could lead to a large need for ramping

METHOD DESCRIPTION ENABLERS

Flexible thermal generation

Thermal generators move into a more flexible operating pattern It will become increasingly common for gas generators to have load factors below 20 per cent per year with daily start and stops

Move away from measuring the value of flexible generation on a levelised energy cost basis

Flexible demand Contracts for load reduction in industry

Consumers respond to dynamic electricity pricing linked to system conditions

Hourly (real or shadow) pricing

Smart metering infrastructureTransfer of technology and best practice

Interconnection The regional generation mix will become more diverse leading to increased cost differentials and opportunities for regional trade

Hourly (real or shadow) pricing of electricity

Cross-border trading arrangements

Storage (batteries, CSP or pumped hydro)

Storage will be used in different ways; provision of spinning reserve

Shift generation from daytime to night-time and from winter to summer periods


Alternative PPA models that can represent the cost structure of storage technology

Integration of electricity and transport sectors

Increased use of electricity and hydrogen in transport to deploy excess PV and wind generation in the transport sector


LON

GER

-TER

M S

OLU

TIO

N

Brendan Cronin is

head of management

consulting for the Middle East

at Pöyry

Figure 2: Integration methods and enablers for renewable energy sources. Source: Pöyry


W ith solar farms sprouting in more areas in the GCC and their tariffs breaking records at each project launch, it is clear that the energy market is steadily heading towards a

transition. At the same time, another transition is occur-ring in the water sector with sea water reverse osmosis (SWRO) breaking foreseeable forecasts both in terms of energy consumption and tariffs.

A sector revolution is taking place and will generate a gradual decoupling of water and power generation. How-ever, the details of how this decoupling is going to unfold remain uncertain.

Handling thermal assetsOn the surface, decommissioning a thermal desalination plant producing water at a tariff of 1-1.5 $cent/cubic metre and huge energy costs appears a simple decision against the alternative of a SWRO plant at 0.5 $cent/cm tariff and 2.9 kWh/cm. In reality, the technicalities of the nexus between thermal power and thermal desalination are much more complex.

Some of the thermal desalination plants providing the bulk of water generation in the GCC countries were commissioned less than a decade ago and the majority of these plants have between 10 to 20 years of residual life until the end of their commercial operation.

The first challenge is taking advantage of the benefits of recent SWRO tariffs and at the same time dealing with the existing thermal fleet until the investment costs are recovered.

The other challenge is related to the water and power nexus. A number of existing large thermal desal-ination plants operate in a cogeneration scheme with

The region’s power and water sector is on a transformation path, with utilities developing water production plants separately from power generation units

DECOUPLING WATER AND ELECTRICITY

the power plant; as such the desalination plant is the condenser for either a back-pressure steam turbine or a pass out steam stream.

In recent years, some project companies have started retrofitting a heat reclaimer to reduce the fuel consump-tion for when thermal desalination is underway without power demand, and thus to improve the poor water to power seasonal matching. However, retiring a thermal desalination plant would simply be impossible without

Power & water

“A number of existing large thermal desalination plants operate in a cogeneration scheme with the power plant”


identifying how to beneficially condense that steam, increasing the thermal power generation efficiency or finding alternative clever solutions to reconfigure the entire power cycle. This is slated to be the challenge in the coming years.

Lowering tariffsPresently, the industry approach to desalination is based on steady state operation. This is a practice inherited by the old power culture whereby production has to be continuous as electricity, unlike water, cannot be stored. Desalination plants therefore became extremely resil-ient on the production side, whereas the storage system downstream production, with an autonomy of 24 hours, remained relatively fragile.

As a consequence, government clients and developers have invested significantly in SWRO plants to protect

them against extreme weather and oil spills. For instance, all SWRO plants in the GCC are presently fitted (or ret-rofitted) with dissolved air floatation (DAF) to withstand the effects of algal bloom, red tides or oil spills. Howev-er, DAF does not come cheap. It requires an investment amounting to between 5-10 per cent of the capital expenditure (capex) of the plant, a large land and energy footprint of 0.05-0.1 kWh/cm.

A water tariff of 0.5 $cent/cm between seven to 10 days per year of red tide occurring every year until the end of the concession time would be required to justify the investment. As severe as a red tide could be, the statistics of this occurrence indicate that the investment in the DAF simply does not make sense.

It would be wiser to invest in storage, reduce the DAF and afford the curtailment of the plant when extreme events occur. In holistic terms it would clearly be more advantageous to invest in recovering all treated sewage effluent (TSE) from the wastewater treatment plants to prevent the eutrophication of our oceans.

Recoupling for efficiency gainsIf the idea that a SWRO plant has to operate on steady mode at 100 per cent production is put aside for a moment, and if we consider storage tanks not only as reservoirs of water but also as a buffer of energy, then more opportunities arise and a different synergy between the water and power sector can occur.

Water produced by a SWRO plant has an inherent ener-gy of 3-4 kWh/cm; therefore storing 200 million imperial gallons a day of production, for instance, becomes not only water storage but a storage of 3,000-4,000MWhours of inherent energy.

Potable water reservoirs can also be thought of as an energy storage solution if we move away from the steady state concept and accept a dynamic operation, whereby the reservoirs can be filled with water during excess energy availability and can be emptied when a grid peak load needs to be managed.

Decoupling the two sectors up-stream in generation and coupling them downstream in water and power dispatch management would enable efficiency gain, resilience and capex optimisation, and the opportunity to take full advantage of the extremely low energy prices made available by photovoltaics.

Corrado Sommariva is

founder and CEO of Sustainable

Water & Power Consultants


Nearly all of the power generated by utilities throughout the GCC is thermal based, with fuel sources being either natural gas or oil. Indeed, this lack of diversity has its conse-quences. Thermal fuel accounts for at least

75 per cent of the operating cost, and when fuel prices rise this means that the actual cost of electricity rises proportionately. Since end-user electricity prices tend to be heavily subsidised, GCC governments end up paying higher subsidies to offset the higher costs.

The fact that some of the fuel sources are local is not of much help, merely because the fuel used in electric-ity production is also heavily subsidised by government policy. Moreover, when market forces drive up the cost of fuel, there is a high ‘opportunity cost’, whereby the fuel is sold in the open market at a much higher price. This means lower revenues for government at a time when scarce capital could be used for other applications.

Despite being aggressively pursued throughout the GCC, renewables are not expected to be a significant contributor to the generation mix in the short run . Unlike thermal-based generation, renewables are not dispatchable. When the sun does not shine or the winds are not blowing, it is a challenge to generate electricity from these two predominant energy sources in the GCC. Competent and economical battery storage could turn the tide, but this is still in its infancy and will take years before it positively shapes the dispatchability of these re-newables. Power utilities will continue to rely on thermal sources as a back-up.

Nuclear promiseNuclear power is seen by some as a solution for the much-needed diversity. It frees up fuels such as natural gas and oil for other uses, and since the uranium feed-stock makes up such a small percentage of operating

Nuclear power could deliver the dream of a cleaner, sustainable energy future

TAKING THE NUCLEAR OPTION

costs (less than 15 per cent), the price impact on electric-ity is far more manageable due to uranium price swings. And given the lower lifecycle costs of nuclear, all of this translates into lower subsidy payments.

UAE’s tryst with nuclear powerBy 2050, the UAE plans to have at least 50 per cent of its electricity generated from nuclear power and renewables. Abu Dhabi, the first government in the GCC to commit to such a programme, began its nuclear journey in 2009. It awarded a $20bn contract to a South Korean consortium to construct four power reactors totalling 5.6GW of in-stalled capacity (about 5.38GW net power) at the Barakah site. Ground-breaking took place in early 2011, with the expectation that units 1 and 2 would reach commercial op-eration in 2017 and 2018, respectively. All four units were planned to be in place by the end of 2020, supplying 25 per cent of electricity needed at significantly lower prices, compared to existing thermal plants fuelled by natural gas.

The Korean solution was chosen in part due to the unit’s highest capacity factor, overall low capital construction costs and shortest construction time, among other well-known bidders from France, the US and Japan. However, two of these three advantages are already in jeopardy.

Nuclear energy

“By 2050, the UAE plans to have at least 50 per cent of its electricity generated from nuclear power and renewables”

Number of nuclear power plant projects planned or underway in the Mena region

UAE 6

SaudiArabia 3

Egypt 6

Jordan 2

Iran 3



Since awarding the contracts, construction costs have so far increased 22 per cent to $24.4bn, or about $4,357 per installed kilowatt, though still within the range of expected costs for a typical nuclear plant. Construction delays, while justified, mean that commercial operation for units 1 and 2 is now scheduled for late 2019 or early 2020, nearly three years later than planned. Reaching full commercial operation by the end of 2021 is a challenge, with 2022 or possibly even 2023 being more realistic in-service dates for the rest of the units.

Regional commitmentTo date, no other GCC country has committed to nucle-ar power to the extent that the UAE has. Saudi Arabia announced in 2009 that it was considering a major nuclear power programme, establishing the Nuclear Holding Com-pany in 2013 to oversee its development. Original plans included 16 nuclear power reactors that would account for about 20 per cent of the kingdom’s electricity generation. The plan called for construction to start in 2016.

To date, construction contracts are yet to be awarded, though discussions are in place to explore various nuclear options, including small-scale nuclear reactors to supply power for some of the kingdom’s desalination plants.

The kingdom produces more than 40 per cent of the world’s desalinated water, a process requiring significant amounts of electricity. The nation is also exploring poten-tial sites in-country for uranium production in support of its planned nuclear programme.

Kuwait was considering the possibility of a nuclear programme until 2016, following which it cited concerns over costs and ended its quest.

Qatar recently announced its intention to establish a scientific research and legal base for nuclear energy, as part of its 2030 Sustainable Development, but has not progressed substantially beyond this.

Oman has made a $120m investment in a uranium development project in Spain. However, there is no mention of a nuclear programme in Oman Power & Water Procurement Company’s seven-year statement, which provides an outlook for future power and desalinated water supply. There is a move in Oman to diversify the fuel mix with greater reliance on renewables (up to 10 per cent of the generation mix by 2025) and the adoption of clean coal (up to 3,000MW by 2030). This could turn out to be a brilliant investment play, especially if and when the state progresses further with its nuclear programme.

Value of nuclear power plant projects planned or underway in the Mena region ($bn)

Robert Bryniak is CEO of

Golden Sands Management

Consulting

Saudi Arabia

70

Egypt 43

UAE 31

Jordan 11

Iran 9



T here is an energy transition underway, with power systems across the world moving towards a more decarbonised energy system. DNV GL’s Energy Transition Outlook forecasts that by 2050, 70 per cent of electricity gen-

eration will come from solar and wind, with an additional 10 per cent from other renewable sources. In the Middle East, further electrification of energy systems is expected to increase power demand threefold by 2050.

Due to the intermittency of solar and wind generation, energy storage is a potential solution to support the integration of large amounts of renewable power into the electricity network. Up to 50TWh of battery energy stor-age is expected to be required to support the global energy system by 2050, as shown in Figure 1.

Utility-scale batteriesThere are over 1.7GW of lithium-ion battery storage systems installed around the world. Over 1GW of these are in North America, with Germany, the UK, South Korea and Australia making up a significant percentage of the remain-ing amount. Each country is taking a different approach to how and why storage is installed based on the technical system needs. There are typically two approaches: top down and bottom up.

While the cost of battery energy storage systems has fallen significantly, the biggest challenge is quantifying the value of storage to a system

UTILITIES TURN TO BIG BATTERIES

Storage

Countries such as the US have put policy in place to mandate storage to be installed, and those such as the UK have put frequency markets in place where the service is entirely provided by storage. Germany has also introduced a tax benefit to drive growth in domestic storage.

On the other hand, countries such as Australia are find-ing applications for storage based on existing markets and tariffs, without the need for top down support.

Price and technologyAlthough the cost of battery energy storage systems has fallen significantly over the past five years (and is forecast-ed to continue to decline), the technology is still consid-ered expensive by the market.

Lazard’s Levelised Cost of Energy Analysis (LCOE) reports are the most highly regarded cost forecasts and they put the LCOE of storage at around $200-$300/kWh for a single cycle a day battery. For a fully wrapped EPC, the market is at around $350,000-$600,000/MWh, though the price per megawatt hour varies significantly depending on the region and size of the system.

The significant driver to bring down the cost further will be supply chain maturity and advancements in the density and make-up of the lithium-ion technology (primarily driv-en by the electric vehicles industry).

Figure 1: Forecasted battery storage dedicated to power sector by region (GWh)

Excludes storage from EV batteries. Source: DNV-GL

70

60

50

40

30

20

10

0

2015

2020

2035

2030

2045

2025

2040

2050

North America

North East Eurasia

Latin America

Greater China

Europe

Indian Subcontinent

Sub-Saharan Africa

South East Asia

Middle East & Africa

OECD Pacific


storage can capture excess generation and also to help strengthen power system stability.

There are also economic reasons where power dispersed from storage at critical times can offset the need for expensive spinning reserve. As an indicator for the future, the West Africa Power Pool is looking at the economic integration of storage resources to assist with balancing and trade across the system. It is conceivable, subject to economics, that energy storage could also be part of the value chain solution for demand response (DR) services where DR providers curtail load from the system and sup-plant temporary supply from storage.

The real opportunity for large-scale battery storage sys-tems in the region is to support the integration of renewa-bles and to integrate and develop a more refined approach to managing system flexibility in an energy system with less conventional dispatchable generation. Several utilities across the region are beginning to explore potential business models for deploying systems and exploring and gaining a better understanding of the potential energy storage supply chain.

Looking to the future, and with the increased expected penetration of electric vehicles, we see block-chain technology as the enabler to facilitate a platform for value creation by which energy storage in different mediums can export to and from the grid whilst monetising the bene-fit for all participants. Such transactions will be based on ‘smart contracts’ which exist on distributed ledgers and for which pricing and settlement is seamless.

Policy and marketsStorage rarely fits into the existing energy policy; it is de-pendent on both demand and generation and so, there are challenges with getting planning permission and defining how storage interacts with existing commercial and sub-sidy arrangements. Countries that have put in place policy that enables storage to compete on a level playing field with other technologies have seen significant benefits and growth in battery storage uptakes.

Value to storage The biggest challenge for the battery storage industry around the world is quantifying the value of storage to a system. Storage can add significant benefits to a system that other technologies cannot provide. As an example, storage can provide dynamic frequency services that can respond in 300 milliseconds, unlike considerably slower conventional technologies such as gas or diesel. However, the industry is finding it difficult to both quantify this bene-fit and put in place a market that allows the technology to benefit or the additional value it can add to the system.

Market demandThere is significant interest across the region in battery energy storage. Investors, asset owners and utilities are considering storage with new projects they are deploy-ing, as well as retrofitting storage to their existing assets to extract more value from the systems.

As an example, the recent Jordan tender process for a 30MW/60MWh system had more than 20 bidders respond to the request for proposal. The number of responders shows the interest in stakeholders wanting to get in-volved in storage projects.

Across the Middle East, there are many studies under-way (as well as actual installations such as in Abu Dhabi) assessing both existing renewable developments where

Storage project types being deployed across the globe Benefits to the system

Standalone storage: These are systems installed on a standalone basis to support the local network or a national system

Standalone systems across the globe are used to support local networks (delaying conventional network reinforcement), providing ancillary services such as frequency response to the system operator and increasing the system flexibility as more renewables come onto the system

Co-located storage: These are storage systems co-located with another generation source such as solar, wind or combined-cycle gas turbines

Co-located storage is used to capture curtailed energy from renewables systems, reduce imbalance charges, decrease the required size of a grid connection, smooth the output of intermittent generation and support non-dispatchable generation in becoming dispatchable

Behind-the-meter storage: These are storage devices located behind a meter customer’s demand meter

Primarily, these devices are used to increase security of supply, increase self-consumption of local renewable generation, and reduce customer bills by providing arbitrage services and minimising the amount of energy bought at peak time

Mohammed Atif is area manager for energy, Middle East and Africa at DNV

GL - Energy


After a long wait, the fifth generation of cellular mobile communications is now a reality, with many operators announcing its commercial launch across the globe.

Unlike 4G, which mainly provided mobile broadband services with better speed compared to earlier generations, 5G can instantly provide enhanced mobile broadband (EMBB) services with much higher bandwidth, reaching up to 20 times higher speed compared to LTE and provide fibre-like experience in home broadband scenarios also referred to as fixed wireless access (FWA). This can enable higher video resolutions such as 4K and 8K videos as well as augmented and virtual reality appli-cations for both mobile and home users.

In addition to EMBB, by the year 2020, 5G will enable more massive machine type of communication (MMTC) and ultra-reliable low latency communication (URLLC).

Future internet of things (IoT) will also flourish under 5G, where everything will be connected under the umbrella of a smart city; from smart wearable devices for tracking to sensors. All of these will enable smart factories, smart agriculture and so on. For this to happen, we need around one million connections per square kilometre.

URLLC will also enable several business and mission critical use cases such as autonomous driving, remote surgery and remote rescue.

Potential benefits5G is important for all the available and potential use cases mentioned above. 5G will help to transform our

The next generation of mobile communications technology is set to transform all aspects of life and work

5G FANFARE BECOMES A REALITY

5G

lives. We expect 5G to change the world and bring benefits to the entire economy and society. Sectors such as education, healthcare, agricultures, retail and emer-gency services will all benefit from such revolutionary technology. Several nations have already recognised these benefits, which is why we see several national strategies and visions to encourage and accelerate the adoption of 5G.

Very soon autonomous driving, smart cites and further immersive entertainment will be available because of 5G. Huawei announced 30+ commercial contracts during the 2019 edition of the Mobile World Congress (MWC) in Barcelona in February.

Upgrading systemsWe trust that current infrastructure can enable 5G, bar-ring some minor and simple upgrades on the radio access part (RAN). Introducing the 5G active antennae will make the network able to deliver all kinds of EMBB services. In simple words, adding 5G radio unit to the current site is allowing operators to launch 5G services. Other network elements need to consider the added traffic from 5G.

Huawei’s ultra-broadband, simplified and intelligent end-to-end (E2E) 5G solution comprises several upgrades to enable a smoother transition to 5G.

5G devices, which includes the first 5G indoor and outdoor customer premises equipment for wireless home broadband use case, enabled the earliest 5G commercial networks in 2018. Huawei also unveiled the world’s fast-est 5G foldable phone during MWC 2019.

Simplified RAN supports massive multiple-input mul-tiple-output (MIMO) to guarantee the user experience and can be flexibly deployed in all scenarios, including rooftops, lamp poles and towers.

The 5G microwave solution fully supports the addition-al backhaul requirements of 5G services, offering intelli-gent solutions in various deployment scenarios.

The converged transport solution, based on a simplified architecture, expands transport capacity for a lower cost per bit and supports 5G transport lifecycle automation.

Further, the 5G core supports a converged, centralised and autonomous control plane for all services (2/3/4/5G – standalone and non-standalone networks). It also fea-tures a distributed and programmable user plane.

“Renewable energy has already been adopted for the base station in recent years, particularly for remote sites where access to commercial power is difficult and limited”


and software, cooling systems, power efficiency and new energy storage systems such as lithium battery storage.

Renewable sources will defi-nitely be a trend for the long run to reduce energy OPEX and CO2 emissions from a social responsibil-ity perspective. Renewable energy has already been adopted for the base station in recent years, par-ticularly for remote sites where access to commercial power is difficult and limited.

We believe with the rapid de-velopment of renewable energy technology and applications, the renewable energy solution will be adopted more and more in the 5G era.

Global services include 5G precise planning, digital engineering and AI technologies to accelerate 5G deploy-ment, achieve automatic and intelligent operation and maintenance (O&M) processes.

5G sites are simpler to deploy than 4G networks and more power efficient on a per-bit basis. The intelligent power control solution, based on artificial intelligence (AI), makes 5G more efficient in terms of power consump-tion per bit compared to 4G. Huawei also utilises AI capa-bilities to simplify 5G deployment and O&M processes.

Impact on energyThere will be more energy consumption impact on the telecom networks after 5G deployment. The adoption of 5G network directly affects the operational expenditure (Opex) and cost, therefore the operators have to focus on the 5G power efficiency from end-to-end, including tel-ecom equipment power optimisation through hardware

An Jian is presi-dent of the Carrier Networks Business

Group at Huawei Middle East


As a hydrocarbons-rich economy, the Middle East is striving to find the balance between oil production and renewable energy generation

SHIFTING GEARS

Conclusion

As Middle East governments seek to max-imise returns from oil reserves and reduce pressure on limited gas supplies, utilities and industrial companies are turning to clean energy resources to play a central

part in meeting the growing demand for power.But while alternative fuels such as coal and nuclear

power are being integrated into the region’s power mix, renewable energy projects will far outstrip them as the primary alternative to natural gas for power generation moving forward.

Blessed with some of the highest solar radiation levels in the world, the Middle East and North Africa is ripe for the development of significant solar capacity to meet the growing demand. There are also significant opportu-nities for developing wind power on the Red Sea coasts of Egypt and Saudi Arabia and at multiple locations in the Levant area.

Solar and wind power are transforming from expensive, supplemental power sources into mainstream power gen-eration technologies, which are already achieving cost parity and beating conventional thermal power facilities.

The move towards reducing carbon emissions has become an increasingly important priority, epitomised by regional support for the 2015 Paris climate agreement. The primary driver behind the Middle East’s shift towards renewable energy is the significant fall in the cost of

clean energy technologies, with the cost of wind and solar having fallen by more than 70 per cent since 2009.

Rather than just following a trend, the Middle East is in many ways driving the growth of renewables, with world-record tariffs continuing to be achieved for wind projects, and photovoltaic and concentrated solar power.

Hitting energy targetsFor the region to meet many of its long-term clean energy goals, utilities face sizeable challenges in the form of storage and transmission of renewable energy. Region-alised issues such as dust and continued subsidies for oil and gas-based fuels will also present a stiff challenge for power providers.

While new technological solutions are improving at a rapid pace, more work is required. The rising influence of digital technologies such as the internet of things and big data will also provide ample opportunities for the region’s utilities to deliver reliable and cost-efficient power. Elec-trification of transport will also have an impact on the demand and supply of energy across the region.

The ambitious renewable energy programmes will not just reduce government fuel bills, but will also pave the way for new jobs and opportunities for diversification of manufacturing sectors. If approached properly, the regional energy boom will bring significant benefits for governments and their people across the Middle East.


ABOUT MEED ABOUT MASHREQ

MEED has been integral to delivering business information, news, intelli-gence and analysis on the Middle East economies and activities for over 60 years. Attracting a key senior management audience through its content and activities, MEED is a media brand, publication and data business that covers a spectrum of services which inform, engage, connect and ultimately support our subscribers and partners in their business development and strategic growth.

Recently acquired by GlobalData Plc, MEED is now part of one of the largest data and insights solution providers in the world with the capacity to build global communities for our clients.

Our purpose is to support the region’s companies make better and more timely decisions through our innovative data solu-tions and grow through our comprehensive and world-class marketing solutions.

To find out more email: [email protected]

Established in 1967, Mashreq is the oldest bank in the UAE, with award- winning financial solutions and services. Throughout its 50 years’ history, Mashreq has differentiated itself through innovative financial solutions, making it possible for its customers to achieve their aspirations.

Today, Mashreq has a significant presence in 11 countries outside the UAE, with 21 overseas branches and offices across Europe, the US, Asia and Africa.

Mashreq launched its new Vision and Mission recently, outlining its commitment towards its clients, colleagues and the community. In line with its vision to be the region’s most progressive bank, Mashreq leverages its leadership position in the banking industry to enable innovative possibilities and solutions for its customers across corporate, retail, international, treasury and Islamic banking.

Mashreq is proud to be the first financial insti-tution in the UAE to be awarded the Gallup Great Workplace Award for four consecutive years from 2014-17. Mashreq also continues to invest in recruiting, training and de-veloping future generations of UAE national bankers.


www.meedmashreqconstructionhub.com

Documents

MIDDLE EAST ENERGY IN THE 21ST CENTURYimage.digitalinsightresearch.in/Uploads/Meed/2019/04/V5_Mashreq_… · Further, Irena’s analysis suggests that achieving renewable energy deployment